Laws, Regulations & Annotations

Property Taxes Law Guide – Revision 2011

Revenue and Taxation Code

Property Taxation

Part 2. Assessment

Chapter 3. Assessment Generally

Article 1. General Requirements

Section 401.17

401.17. Certificated aircraft; fiscal years 2005–06 to 2015–16. (a) For the 2005–06 fiscal year to the 2015–16 fiscal year, inclusive, it shall be rebuttably presumed that the preallocated fair market value of each make, model, and series of mainline jets, production freighters, and regional aircraft that has attained situs within this state is the lesser of the sum total of the amounts determined under paragraph (1) or the sum total of the amounts determined under paragraph (2). The value of an individual aircraft assessed to the original owner of that aircraft shall not exceed its original cost from the manufacturer. The preallocated fair market value of an aircraft may be rebutted by evidence including, but not limited to, appraisals, invoices, and expert testimony.

(1) (A) The original cost for the aircraft, which shall be determined as follows and adjusted, as applicable, under subparagraphs (B), (C), and (D):

(i) For owned and leased aircraft, the taxpayer's or lessor's acquisition cost for that individual aircraft reported in accordance with generally accepted accounting principles, and to the extent not included in the acquisition cost, transportation costs and capitalized interest and the cost of improvements made before a transaction described in clause (ii). If the original cost for leased aircraft cannot be determined from information reasonably available to the taxpayer, original cost may be determined by reference to the "average new prices" column of the Airliner Price Guide for that model, series, and year of manufacture of aircraft. If information is not available in the "average new prices" column for that model, series, and year, the original cost may be determined using the best indicator of original cost plus all conversion costs and improvement costs incurred for that aircraft.

(ii) For sale/leaseback or assignment of purchase rights transaction aircraft, the average of the taxpayer's cost established pursuant to clause (i) and the cost established in a sale/leaseback or assignment of purchase rights transaction for individual aircraft that transfers the benefits and burdens of ownership to the lessor for United States federal income tax purposes. In no event shall the original cost for sale/leaseback aircraft be less than the taxpayer's acquisition cost.

(iii) In the event of a merger, bankruptcy, or change in accounting methods by the reporting airline, there shall be a rebuttable presumption that the cost of the individual aircraft and the acquisition date reported by the acquired company, if available, or the cost reported prior to the change in accounting method, are the original cost and the applicable acquisition date.

(B) (i) For mainline jets and production freighters, the original cost described in subparagraph (A), plus the cost of any improvements not otherwise included in the original cost, shall be adjusted from the date of the acquisition of the aircraft to the lien date using the monthly United States Department of Labor Producer Price Index for aircraft and a 20-year straight-line percent-good table starting from the delivery date of the aircraft to the current owner or, in the case of a sale/leaseback or assignment of purchase rights transaction, as described in this section, the current operator with a minimum combined factor of 25 percent.

(ii) For regional aircraft, the original cost described in subparagraph (A), plus the cost of any improvements not otherwise included in the original cost, shall be adjusted from the date of the acquisition of the aircraft to the lien date using the monthly United States Department of Labor Producer Price Index for aircraft and a 16-year straight-line percent-good table starting from the delivery date of the aircraft to the current owner or, in the case of a sale/leaseback or assignment of purchase rights transaction, as described in this section, the current operator with a minimum combined factor of 25 percent.

(iii) If original cost is determined by reference to the Airliner Price Guide "average new prices" column, the adjustments required by this paragraph shall be made by setting the acquisition date of the aircraft to be the date of the aircraft's manufacture.

(C) (i) For mainline jets and regional aircraft, the assessor shall analyze the adjusted original cost derived pursuant to subparagraph (B), for application of an economic obsolescence allowance which shall be determined as follows:

(I) For the applicable year, the assessor shall calculate the average annual net revenue per available seat mile, the net load factor, and the yield utilizing the Airline Quarterly Financial Review published by the United States Department of Transportation, and referring to the section descriptive of the passenger airline industry, entitled "System Operations, System Pax. Majors" for the calendar year ending December 31 immediately preceding the applicable assessment date.

(II) For a 10-year benchmark, the assessor shall calculate as of December 31 for each of the 10 calendar years preceding the applicable year, the average annual net revenue per available seat mile, the net load factor, and the yield utilizing the Airline Quarterly Financial Review published by the United States Department of Transportation, and referring to the section descriptive of the passenger airline industry, entitled "System Operations, System Pax. Majors" for the calendar year ending December 31 immediately preceding the applicable assessment date.

(ii) (I) The assessor shall compare each factor calculated under subclause (I) of clause (i) with the corresponding factor calculated under subclause (II) of clause (i) to derive the percentage that each of the factors calculated under subclause (I) of clause (i) deviated from the 10-year benchmark calculated under subclause (II) of clause (i). The assessor shall then calculate a weighted average of the indicated percentage adjustments, weighted as follows:

(II) The assessor shall reduce the adjusted original costs derived under subparagraph (B) by the percentage adjustment calculated in subclause (I), but only if the final economic obsolescence determined under that subclause exceeds 10 percent, otherwise no economic obsolescence allowance shall be provided.

(D) (i) For production freighters, the assessor shall analyze the adjusted original cost derived under subparagraph (B), for application of an economic obsolescence allowance, as follows:

(I) For the applicable year, the assessor shall calculate the industry average of net revenue per available ton mile and the ton load factor based upon the Airline Quarterly Financial Review published by the United States Department of Transportation, and referring to the section descriptive of the cargo airline industry, entitled "System Operations, System Cargo Majors" for the calendar year ending December 31 preceding the relevant assessment date.

(II) For a 10-year benchmark, the assessor shall calculate as of December 31 for each of the 10 calendar years preceding the applicable year, the net revenue per available ton mile and the ton load factor utilizing the Airline Quarterly Financial Review published by the United States Department of Transportation and referring to the section descriptive of the cargo airline industry, entitled "System Operations, System Cargo Majors" as of December 31 for each of the 10 calendar years preceding the calendar year utilized for the subject year, for the calendar year ending December 31 immediately preceding the applicable assessment date.

(ii) (I) The assessor shall compare each factor calculated under subclause (I) of clause (i) with the corresponding factor calculated under subclause (II) of clause (i) to derive the percentage that each of the factors calculated under subclause (I) of clause (i) deviated from the 10-year benchmark calculated under subclause (II) of clause (i). The assessor shall then calculate a weighted average of the indicated percentage adjustments so that the net revenue per available ton mile is weighted 50 percent and the ton load factor is weighted 50 percent.

(II) The assessor shall reduce the adjusted original costs derived under subparagraph (B) by the percentage adjustment calculated in subclause (I), but only if the final economic obsolescence determined under that subclause exceeds 10 percent, otherwise no economic obsolescence allowance shall be provided.

(2) (A) Except as otherwise provided in subparagraph (B), for each individual mainline jet, production freighter, or regional aircraft, the assessor shall identify the value referenced in the "Used Price of Avg. Acft. Wholesale" column of the Winter edition of the Airliner Price Guide by make, model, series, and year of manufacture, and deduct 10 percent from that value for a fleet discount.

(B) For each individual mainline jet, production freighter, or regional aircraft that is less than two years old and for which the Airliner Price Guide does not list used wholesale values, the original cost determined under paragraph (1) of subparagraph (A) shall be decreased by the lesser of 5 percent or one-half of the percentage decrease between original cost and 90 percent of the value listed in the "Used Price of Avg. Acft. Wholesale" column of the Winter edition of the Airliner Price Guide for a two-year-old aircraft of that same make, model, and series.

(b) For the 2005–06 fiscal year to the 2015–16 fiscal year, inclusive, it shall be rebuttably presumed that the preallocated fair market value for each make, model, and series of converted freighters that has attained situs within this state is the amount that is determined as follows:

(1) (A) The assessor shall begin his or her appraisal of a converted freighter as of the relevant lien date by identifying the aircraft's original cost as a passenger aircraft prior to conversion. The aircraft's original cost as a converted freighter shall be the lesser of:

(i) Its trended original cost as a passenger aircraft prior to conversion, less a downward adjustment of 10 percent to reflect tear outs.

(ii) Its value described in the Winter edition of the Airliner Price Guide in the "Used Price of Avg. Acft. Wholesale" column in passenger configuration, less a downward adjustment of 10 percent to reflect tear-outs.

(B) The amount determined under subparagraph (A) shall be adjusted according to the following:

(i) If, on the relevant lien date, the frame of the aircraft is 15 years old or more, 50 percent of the cost to convert the aircraft to a freighter shall be added to the value determined under subparagraph (A).

(ii) If, on the relevant lien date, the frame of the aircraft is less than 15 years old, 75 percent of the cost to convert the aircraft to a freighter shall be added to the value determined under subparagraph (A).

(iii) In addition, all other improvements, including capitalized interest, to the aircraft that are not otherwise included in the aircraft's original and conversion costs shall be added at full value.

(2) The amount determined under paragraph (1) shall be adjusted from the date of the conversion of the aircraft to the lien date using the monthly United States Department of Labor Producer Price Index for aircraft and a 16-year straight-line percent-good table, however, the percent-good applied to the aircraft shall in no event be less than 15 percent.

(3) If the Airliner Price Guide "Used Price of Avg. Acft. Wholesale" is utilized under paragraph (1), only the improvements and adjusted conversion costs pertaining to the converted freighter shall be adjusted from the date of the conversion of the aircraft to the relevant lien date using the monthly United States Department of Labor Producer Price Index for aircraft and a 16-year straight-line percent-good table. In no event, however, shall the percent-good applied to the improvements and adjusted conversion costs be less than 15 percent.

(4) (A) Except as otherwise provided in subparagraph (B), the assessor shall reduce the adjusted original cost, plus improvements, and adjusted conversion costs, derived under paragraphs (1) to (3), inclusive, by the obsolescence percentage adjustment calculated for production freighters under subparagraph (D) of paragraph (1) of subdivision (a).

(B) If the Airliner Price Guide "Used Price of Avg. Acft. Wholesale" is utilized under paragraph (1), only the improvements and adjusted conversion costs pertaining to the converted freighter shall be reduced by the obsolescence percentage adjustment described in subparagraph (A).

(c) For purposes of this section, if the Airliner Price Guide ceases to be published or the format significantly changes, a guide or adjustment agreed to by commercial air carriers and the counties in which certificated aircraft have situs shall be substituted. If these parties do not agree on a guide or adjustment, the State Board of Equalization shall determine the guide or adjustment.

(d) The taxpayer shall, to the extent that information is reasonably available to the taxpayer, furnish the county assessor with an annual property statement that includes the aircraft original costs as defined in subparagraph (A) of paragraph (1) of subdivision (a). If an air carrier that has this information reasonably available to it fails to report original cost and improvements, as required by Sections 441 and 442, an assessor may in that case make an appropriate assessment pursuant to Section 501.

(e) For purposes of this section, all of the following apply:

(1) "Converted freighter" means a certificated aircraft, as defined in Section 1150, that, following its original manufacture, was used for passenger transportation, but was later converted to be used primarily for cargo transportation purposes.

(2) "Mainline jet" means a certificated aircraft, as defined in Section 1150, that is either of the following:

(A) Manufactured by Boeing, Airbus, or McDonnell Douglas.

(B) Capable of being configured with approximately 100 seats or more.

(3) "Production Freighter" means a certificated aircraft, as defined in Section 1150, that immediately following its manufacture is deployed primarily for cargo transportation purposes.

(4) "Regional aircraft" means a certificated aircraft, as defined in Section 1150, that is either of the following:

(5) "Improvements" means the cost of any modifications or capital additions that materially add to the value of or substantially prolong the useful life of the aircraft, or make it adaptable to a different use. "Improvements" include modification costs incurred during a heavy maintenance visit to the extent that they materially add to the value of or substantially prolong the useful life of the aircraft. "Improvements" do not include repair and maintenance costs incurred for the purpose of keeping the aircraft in an ordinarily efficient operating condition.

(6) "Net revenue per available seat mile" means operating revenue per available seat mile less cost per available seat mile as determined by the United States Department of Transportation.

(7) "Net load factor" means actual passenger load factor less breakeven passenger load factor, as determined by the United States Department of Transportation.

(8) "Net revenue per available ton mile" means operating revenue per ton mile less cost per available ton mile as determined by the United States Department of Transportation.

(9) "Yield" means average revenue per revenue passenger mile as determined by the United States Department of Transportation.

(10) "Ton Load Factor" means that percentage of effective use of cargo capacity as determined by the United States Department of Transportation.

(f) The amendments made by the act adding this subdivision shall apply with respect to lien dates occurring on and after January 1, 2011.

History.—Added by Stats. 2005, Ch. 699 (AB 964), in effect October 7, 2005. Stats. 2010, Ch. 228 (AB 384), in effect January 1, 2011, substituted "2015-16" for "2010-11" after "year to the" and added "it shall be rebuttable presumed that" after ", inclusive," in the first sentence, added the second and third sentences to subdivision (a) and substituted "clause" for "paragraph" after "described in" in the first sentence of clause (i) of subparagraph (A) of paragraph (1) therein; substituted "2015-16" for "2010-11" after "year to the", added "it shall be rebuttably presumed that" after ", inclusive," and substituted "is the amount that is" for "shall be" in the first sentence of subdivision (b); and added subdivision (f).

Note.—Section 1 of Stats. 2005, Ch. 699 (AB 964) provided that:

(a) The Legislature finds and declares all of the following:

(1) A difficult and contentious property tax assessment issue concerns the assessment of certificated aircraft following the incident of September 11, 2001. The difficulty of measuring the economic obsolescence resulting from the incident, pertaining to a variety of aircraft types, many with tax situs in several counties, justifies a standardized approach to the appraisal of these aircraft.

(2) The difficulty of appraising certificated aircraft following the incident has given rise to much litigation and many tax appeals.

(3) The uncertainty created by pending litigation and appeals over the assessment of airline property is disruptive to both airline industry tax planning and local government and school finance.

(b) It is the intent of the Legislature in enacting this act to establish a unique methodology for the assessment of certificated aircraft in light of the special circumstances that befell this property and the airline industry following the September 11, 2001, incident. Specialized procedures, including the unique valuation methodology enacted herein, are justified by the multijurisdictional use of certificated aircraft property, and the manner in which valuations of this property are allocated. Therefore, in order to facilitate resolution of the disputes over the assessment of certificated aircraft, it is the intent of the Legislature to codify recommendations produced by a county and airline industry working group, to establish a uniform valuation methodology specifically designed and adopted for the unique circumstance of certificated aircraft property.

Section 5 thereof provided that the provisions of this measure are severable. If any provision of this measure or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.

Section 7 thereof provided that this act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and shall go into immediate effect. The facts constituting the necessity are: In order to establish, for the current fiscal year, a uniform valuation methodology for certificated aircraft in light of the special circumstances affecting the airline industry following the September 11, 2001 incident, it is necessary that this act take effect immediately.